Bankruptcy of ill airline is probable

US Airways chief expected to seek merger or sale

No. 2 carrier at BWI

Finance specialist calls situation a catastrophe

November 29, 2001|By Paul Adams | Paul Adams,SUN STAFF

The resignation of US Airways President and Chief Executive Officer Rakesh Gang- wal has added to speculation that the troubled airline is headed for a bankruptcy sale as a result of the Sept. 11 terrorist attacks and a sluggish economy.

With the Arlington, Va.-based airline already reeling from its failed merger with UAL Corp.'s United Airlines, some analysts are predicting that US Airways Chairman Stephen M. Wolf will reprise his role as turnaround artist and find a way to merge or sell the airline before its cash reserves run too low.

"Certainly, his mantra has been `shine it up and sell it off,'" said Robert Mann, a New York aviation consultant. "It looked for a while there as if maybe he wouldn't have to do that in this case - that maybe this franchise could be saved."

Though some say the airline can still find a niche through restructuring, industry experts are increasingly skeptical that US Airways, the second-largest airline operating at Baltimore-Washington International Airport, will survive its current crisis as an independent carrier.

Gangwal's unexpected departure Tuesday, while hailed by some analysts, has only added to the airline's uncertain future. US Airways' shares closed down $1.58, or 20 percent, yesterday to $6.42.

"I think what you're looking at right now is a catastrophe," said Richard Gritta, an airline finance specialist at the University of Portland. "I think what he should do is file Chapter 11. I don't think he has a choice."

US Airways and America West have been widely considered the two most vulnerable airlines in the wake of the Sept. 11 attacks. US Airways lost a record $766 million in the third quarter and is still struggling to rebuild its hub at Washington's Reagan National Airport, which was shut down for three weeks after the attacks and remains restricted. It is winding down its BWI-based MetroJet service beginning next month - a move that will end 49 daily flights from the airport.

America West has applied for millions of dollars in federal loan guarantees in a bid to stay in business.

US Airways could follow suit, but might face a more difficult challenge in obtaining such loans. Federal regulators have indicated that they won't approve loans to airlines that cannot prove they are financially sound.

Meeting that threshold may force weak carriers to fold or seek mergers, analysts said. And in the current environment, federal regulators may be willing to overlook the same antitrust concerns that doomed US Airways' merger with United Airlines in the summer.

"Loans won't be forthcoming if the airline is dead on arrival, so the [loan] guarantee board is making sounds like, `If you want money, come to us with consolidation proposals,'" Mann said.

Wolf may have few options. With labor unions gearing up for a fight, the airline, which has laid off 11,000 and cut capacity by 23 percent, will have difficulty winning more concessions aimed at reducing labor costs - something many analysts see as essential to any restructuring plan.

However, dealing with labor was largely Gangwal's territory, and Wolf has shown little willingness to bend. The airline recently rejected a conditional proposal by its pilots union that would have allowed US Airways Express carriers to operate more regional jets. Management has made the addition of regional jets a focus of its plans to restructure the airline.

Gritta said Wolf might try to appeal to Congress for more financial help, arguing that the federally imposed restrictions on air traffic at Reagan National are killing the airline.

"My gut feeling is that Wolf is going to play that card - that `we're going down, you shut our airport and we want compensation for that and you should let us merge,'" Gritta said.

Wolf has been there before, making a career of polishing struggling airlines and seeing them eventually merged or sold off, as in the case of Republic Airlines, Tiger International and United, which was sold to employees in a deal brokered by Wolf.

But this time may be different, analysts said. No major carriers are in any shape to absorb another airline, much less one that comes with major structural problems. Trans World Airlines is a case in point. The airline failed to find a buyer for years before finally being picked up by American Airlines in a bankruptcy sale this year.

"It [US Airways] is not a salable airline as it currently exists," said Barbara Beyer, an aviation consultant with Avmark Inc. in Arlington, Va. Beyer said US Airways could survive if properly managed. But so far, the airline has not put forth a solid plan, she said.

Some analysts say Wolf probably would have to auction off the airline in pieces. US Airways' lucrative Washington-New York-Boston shuttle has long been coveted by rivals, and its hubs in Pittsburgh, Philadelphia and Charlotte, N.C., could find interest among potential bidders.

"If you don't have to take the whole ball of wax, you can pick the carcass pretty well," Mann said.